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Bank of Canada Review - Summer 2005

June 25, 2005
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BoC Review - Summer 2005
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Cover page

African Marriage Money

The metal marriage currencies pictured on the cover are part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.
Content Type(s): Publications, Bank of Canada Review
June 25, 2005

Changes in the Indicator Properties of Narrow Monetary Aggregates

Bank of Canada Review - Summer 2005 Tracy Chan, Ramdane Djoudad, Jackson Loi
Although many countries have abandoned monetary targeting in recent decades, monetary aggregates are still useful indicators of future economic activity. Past research has shown that, compared with other monetary aggregates and expressed in real terms, net M1 and gross M1 have traditionally provided superior leading information for output growth.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary aggregates, Monetary and financial indicators
June 22, 2005

Estimating the Impact of Monetary Policy Surprises on Fixed-Income Markets

Bank of Canada Review - Summer 2005 Jason Andreou
In the interest of better understanding the impact of the Bank of Canada's policy actions on bond and bill yields, Andreou assesses the impact of policy-rate announcements on short and long bonds over the period 1996 to 2004. To aid the analysis, policy actions are decomposed into expected and surprise components. He also examines whether the introduction of fixed announcement dates (FADs) has affected these results, including markets' perceptions. The main finding is that unexpected policy actions by the Bank have a significant effect on market rates at the shorter end of the yield curve, with the effect dissipating as the maturity increases. A second finding, that the impact on longer-term interest rates of a surprise action by the Bank has diminished since the introduction of the FADs, suggests that the Bank's long-term policy goals are well understood and credible.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Credibility, Financial markets, Monetary policy and uncertainty
June 18, 2005

Recent Trends in Canadian Defined-Benefit Pension Sector Investment and Risk Management

Bank of Canada Review - Summer 2005 Eric Tuer, Elizabeth Woodman
Defined-benefit (DB) pension plans account for the majority of employer pension fund assets. In recent years, a number of DB plans have become underfunded, in sharp contrast to the 1990s, when many plans had large actuarial surpluses. The deterioration in the financial health of DB plans has underscored various longer-term structural issues that could make it increasingly difficult for plan sponsors to manage the financial risks of these plans. Tuer and Woodman examine how funding deficits, a greater focus on plan liabilities, a low yield environment, and changing investment beliefs are influencing investment decisions in the Canadian DB pension sector. They review the funding of DB plans, changing views on the equity-risk premium, and the shift towards liability-centred approaches to investment and how these developments are affecting pension sector investment. They also consider additional influences on the pension sector, including the limited supply of long-term bonds, the elimination of the foreign-property rule, and the movement towards fair-value accounting and a financial-economics approach to actuarial valuation, as well as their implications for financial markets.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial institutions, Recent economic and financial developments